Mutual Fund News

A buyer's guide to Canadian equity ETFs

There are more than 360 ETFs listed on the Toronto Stock Exchange. Three to six are all you need for a nicely diversified portfolio.

Recognizing that investors need help finding the right ETFs for their portfolios, we're creating The Globe and Mail ETF Buyer's Guide. In this first instalment, we look at 17 different ETFs offering core exposure to the Canadian stock market. Coming in the months ahead: Canadian dividend and bond ETFs, U.S. equity and dividend ETFs and international ETFs. Let me know if you want any other categories covered by sending me an e-mail at rcarrick@globeandmail.com.

Here are some explanations of the terms you'll find in this ETF Buyer's Guide:

Assets: Shown to give you a sense of how interested other investors are in a fund; the smallest funds may be candidates for delisting.

Management expense ratio (MER): The main cost of owning an ETF; published returns are shown on an after-fee basis.

Trading expense ratio (TER): The cost of trading commissions racked up by the managers of an ETF as they shuffle the portfolio to keep it in line with a target index; add the TER to the MER for a fuller picture of a fund's cost.

Dividend yield: Mainstream indexes can be a good source of dividend income.

Distribution frequency: How often are dividends paid out?

Average daily trading volume: Trading of less than 10,000 shares per day on average tells you an ETF isn't generating much interest from investors.

Top three sector weightings: Most Canadian market ETFs reflect the fact that financials, energy and materials account for about 70 per cent of the market; a few ETFs attack the market differently.

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SELECTED EQUITY ETFS: THE NITTY-GRITTY

Fund

Ticker

Assets ($-mil)

MER (%)

TER (%)

Recent Price $

Div. Yld (%)

Avg dly trad. vol/past 30 dys

Distrib.Freq.

Top ThreeSector Weightings %

Top Three Hldngs% (Ticker)

1-yr% rtn

3-yr% rtn

5-yr% rtn

Launch Date

BMO S&P/TSX Capped Composite Index ETF

ZCN

1,020

0.17

0

17.97

2.8

41,618

QTRLY

Financials: 35.4

RBC: 6.3

8.7

0.6

n/a

29/05/2009

Energy: 24.7

TD: 5.5

Materials: 12.3

BNS: 4.7

Comment: A top contender as a go-to ETF for core Canadian exposure. A fair bit cheaper than its main competitor, XIC.

BMO Low Volatility Canadian Equity ETF

ZLB

143

0.4

0

20.13

2.2

12,335

QTRLY

Financials: 18.9

FFH: 4.6

21.3

n/a

n/a

21/10/2011

Cons Staples: 17

DOL: 4.4

Cons Discr: 14

MRU: 3.8

A much tamer mix of stocks than in most Canadian equity ETFs, but check out the top holdings (Fairfax, Dollarama, Metro). Not your usual mix of Canadian blue chips. Perhaps this is more of a complementary fund than a core position.

First Asset Morningstar Cda Momentum Index

WXM

51.3

0.67

0.12

13.07

1.1

33,183

QTRLY

Materials: 13.4

STN: 3.9

23.2

n/a

n/a

15/02/2012

Energy: 13.4

HCG: 3.7

Industrials: 13.3

WJA: 3.6

Pricey, when you add the TER and MER together, and too new to really judge despite strong early returns. Trading volume suggests there's some interest from investors.

First Asset Morningstar Cda Value Index ETF

FXM

66.4

0.68

0.21

13.84

1.6

40,193

QTRLY

Industrials: 17.2

WJA: 3.7

28.5

n/a

n/a

15/02/2012

Cons Staples: 16.5

TCL.A: 3.7

Financials: 13.2

GNV:3.7

Like WXM, this fund offers a superior level of diversification than mainstream indexes and impressive early results. What we don't know is how it will perform over a full market cycle.

Horizons S&P/TSX 60 Index ETF

HXT

949.7

0.06

0

23.60

n/a

195,729

NONE

Financials: 34.3

RBC: 8.3

12.8

4.1

n/a

13/09/2010

Energy: 26.3

TD: 7.4

Materials: 11.4

BNS: 6.1

The cheapest way for investors to buy Canada, and growing in popularity. But the use of derivatives to mimic the performance of the S&P/TSX index is a turnoff for risk-averse investors. Dividends are built into the share price return - no cash is paid quarterly.

Horizons S&P/TSX 60 Equal Weight Index ETF

HEW

11.0

0.53

0.14

11.55

2.3

1,340

QTRLY

Energy: 24.9

RBC: 1.7

5.9

0.8

n/a

14/07/2010

Materials: 18.4

TD: 1.7

Financials: 16.8

BNS: 1.7

Overlooked by investors, and rightly so. Fees on the high side, and no discernible benefits from the equal weighting approach.

iShares Cdn Fundamental Index Fund

CRQ

222

0.72

0

13.16

2.3

16,654

QTRLY

Financials: 42.3

RBC: 7.3

14.7

3.1

8.5

22/02/2006

Energy: 27.3

TD: 6.2

Materials: 8.2

BNS: 4.9

A great long-term performer that remains a niche player. The high financials weighting is cause for caution.

iShares Dow Jones Cda Select Growth Index Fund

XCG

22.8

0.55

0.04

23.04

1.6

2,516

QTRLY

Materials: 23.7

CNR: 11

2.7

-1.7

6.3

06/11/2006

Industrials: 19.9

ENB: 9.9

Energy: 18.4

POT: 7.5

Has had its moments in the past five years, but doesn't deliver consistently competitive returns.

iShares Dow Jones Cda Select Value Index Fund

XCV

56.1

0.55

0.01

22.40

3.1

2,258

QTRLY

Financials: 55.6

RBC: 10.2

13.9

3.5

6.7

06/11/2006

Energy: 19.7

TD: 10.1

Materials: 7.7

BNS: 8.7

Good five-year returns and a nice dividend yield. But the financials weighting is massive, especially if you also own bank stocks.

iShares Jantzi Social Index Fund

XEN

21.6

0.55

0.01

19.53

2.4

1,213

QTRLY

Financials: 41.6

RBC: 10.9

13.2

3.2

6.9

14/05/2007

Energy: 17.1

TD: 9.5

Materials: 11.2

BNS: 8.2

A good option for investors who want a socially responsible version of the Canadian market in their portfolios. Companies in the fund are best-in-class in a variety of social measures.

iShares MSCI Canada Minimum Volatility Index Fund

XMV

16.2

0.34

0.02

23.25

2.5

1,694

QTRLY

Energy: 20.9

BMO: 3.3

9.5

n/a

n/a

24/07/2012

Financials: 19.1

TD: 3.3

Cons Staples: 8

CM: 3.3

Better diversified than the mainstream indexes, but too soon to say if it gels.

iShares S&P/TSX 60 Index Fund

XIU

11,813

0.18

0

19.24

2.9

3,769,581

QTRLY

Financials: 37.5

RBC: 8.4

9.1

1.1

5.7

28/09/1999

Energy: 22.8

TD: 7.3

Materials: 11.3

BNS: 6.3

Check the assets - this is Jupiter in Canada's solar system of ETFs. Cheap, liquid and built on blue chips. You can't really go wrong.

iShares S&P/TSX Capped Composite Index Fund

XIC

1,305

0.27

0

20.99

2.7

82,455

QTRLY

Financials: 35.1

RBC: 6.3

8.6

1.0

6.7

16/02/2001

Energy: 23.6

TD: 5.5

Materials: 12.3

BNS: 4.7

Hard to see the appeal with ZCN around.

PowerShares FTSE RAFI Cdn Fundamental Index ETF

PXC

98.2

0.5

0

22.50

2.7

3,473

QTRLY

Financials: 42.9

RBC: 7.3

12.8

n/a

n/a

26/01/2012

Energy: 28.2

TD: 6.2

Materials: 7.7

BNS: 4.9

A cheaper version of CRQ that hasn't yet caught on.

PowerShares S&P/TSX Composite Low Vol Index ETF

TLV

18.4

0.34

0.04

22.22

3.7

1,476

MTHLY

Financials: 59.5

BMO: 2.9

8.9

n/a

n/a

24/04/2012

Energy: 14.7

CM: 2.8

Cons Disc: 7.4

NA: 2.8

Another attempt to lure conservative investors into the stock market by offering a less volatile mix of stocks. Too heavy on financials to be a core fund.

Vanguard FTSE Canada All Cap Index ETF

VCN

13.4

0.12*

n/a

26.50

n/a

5,961

QTRLY

Financials: 35.1

RBC: 6.4

n/a

n/a

n/a

02/08/2013

Energy: 25.8

TD: 5.8

Materials: 13.5

BNS: 4.8

Something new for the Canadian market - an ETF that wraps small, medium and large stocks into one fund. In the U.S. market, this approach has worked well for investors.

Vanguard FTSE Canada Index ETF

VCE

185

0.11

0

27.82

2.2

11,984

QTRLY

Financials: 39.5

RBC: 7.9

10.1

n/a

n/a

30/11/2011

Energy: 24.5

TD: 7.1

Materials: 12.4

BNS: 5.8

Frugal investors, don't overlook this one.

Note: * management fee only; the fund is too new to have computed a management expense ratio. Source: Globeinvestor.com, company websites and regulatory filings